Anticipation of interest rate hikes by the Federal Reserve is putting the kibosh on the stocks of young technology companies.
Chicago Cubs fans used to say that any team can have a bad century.
And now investment star Cathie Wood, chief executive of Ark Investment Management, may be saying that any fund can have a bad 20 months.
Her flagship fund Ark Innovation ETF(ARKK) slid 5% Friday to $64.80, its lowest level since June 2020. The fund and Wood’s reputation took off when it soared 157% in 2020. But it slid 23% last year, and has dropped another 31% so far this year.
The fund’s young technology stocks have suffered from rising bond yields overall and anticipation of Federal Reserve interest-rate increases.
Rising rates hurt the stocks by making the potential earnings streams of young tech companies less valuable compared to safer investments, such as Treasury bonds. In addition, many young tech companies borrow money, so higher rates increase their debt costs.
Ark Innovation’s biggest stock holdings, starting with the largest, are electric-car titan Tesla, which has slid 21% in the last three months; online healthcare system Teladoc Health, which has dropped 51% during that period; streaming platform Roku, which has lost 55%; and video meeting platform Zoom Video Communications, which has shed 52%.
Wood is unbowed by her stocks’ descent. “The important thing to keep in mind is the long-term horizon that we invest in,”she told investors last month. “We have a five-year horizon. I’ve never seen innovation on sale like it is today.”
So Wood has been snapping up shares, including Tesla,Roku and Zoom on Thursday.